It is claimed, that railway valuation for
privatisation in the 1990s proves that the 1948 nationalisation terms were
generous.[1]During Privatisation debates,
Opposition MPs claimed [2] that privately owned railways were pleading after
WW2 for a state takeover. This claim has been more recently been reiterated [3]. Railway
companies and their 1.25m stockholders vehemently opposed takeover.

The Construction of Future Railways Act,
1844 registered a nationalisation marker by empowering the State to buy any
company for 25 years’ profits based on an average of the preceding three years.
The Act held down averages by empowering the Treasury to revise tolls to limit
profits to 10%.[4]Unlike the French,
German and Belgian governments, UK
had no route masterplan. Route selection was left to companies.[5]Objections to routes which might be
beneficial increased legal & land costs, making UK railways more costly per
mile than foreign systems.

In 1871, government enacted powers to
sequestrate railways during a war, and used them in 1914, having not put one
penny into railways, undertaking only to maintain profits at 1913 levels.
Operations were left to companies. Government profited hugely, leaving railways
in a rundown state after the war. Government froze railway charges during the
war, and had all war materials and personnel carried free! In contrast,
industry, shipping and road transport were uncontrolled. Railway costs were
increased by industrial inflation, leaving receipts well behind. In 1919, to
resolve losses it had caused, government set up an Inquiry to decide fares and
charges. It limited future railway profits to 1913 levels, regardless of
inflation – further limiting potential nationalisation costs. In 1919,
Churchill told the Dundee Chamber of Commerce that it might pay the State to
run railways at a loss to develop industries and agriculture. Government
underpaid railways for free carriage of everything connected with that war, and
for the ensuing abnormal wear and tear, etc., by reneging on their legal
obligation in an 1871 Act to submit compensation claims to arbitration.[6]

In 1921, 123 railway companies were forcibly
merged into four groups – the Big Four – to prevent bankruptcy of smaller
companies whose finances were deeply undermined in the war. By linking them
with the profitable main line companies, government blocked closures which
would have been a serious vote loser. It took the Big Four about ten years to
recover from their unrewarded Herculean efforts during the 1914-18 war.

Meanwhile, the infant road transport
industry went into overdrive powered by ex-military vehicles sold at knock-down
prices. The War Office sold 80,000, many brand-new, without reserve, and with
hire-purchase. The US Army sold 9,000 in Britain. Lorry drivers’ hours
exceeded limits imposed on railways by government in 1919.[7]For years, hauliers paid little or nothing
towards road costs. They could expand at will; railways needed an Act of
Parliament to expand. Therefore, railway companies sought – in their 1938
‘Square Deal Campaign’ – equal commercial freedom or equal regulation of road
transport. Government measures to regulate road transport expansion were
circumvented by more trailers and overloaded vehicles. It has been claimed that
government was about to concede railways’ demands when World War 2 started.
Government files [8] reveal that they had no intention of conceding railway
demands.

In World War 2, government sequestrated
railways - but no other transport or industry – and swept aside its statutory
1913 profits limit: £51m, and imposed £43m. When railways objected to this
iniquitous action, they were threatened with nationalisation.[9] Government had
decided to allow railways to match prices to costs, subject to approval by the
Railway Rates Tribunal.[10]All others
could increase wartime prices to match cost increases under the Prices of Goods
Act, 1939. After a few months, Churchill froze rail fares and freight charges
for the duration. By the end of the war, industrial-fuelled inflation opened a
huge gap between costs and income. During the war, the conservative majority in
the Cabinet decided they must consider post-war reorganisation of transport –
road and rail.[11]

After the war, railways were nationalised,
which it was believed would take away the profit [12] aspect, keeping down
fares. Publicly, Ministers justified nationalisation by their post-war
condition. That was nonsense. They suffered the same fate during WW1, and
recovered after a few years without any government help. After WW2, railways
were in a stronger position, ‘having enormous sums at our disposal – to spend
as soon as conditions, and the Cabinet permits’ said Sir Ronald Matthews, LNER
Chairman, (The Times, 4 April 1947)

Nationalisation was a long held Socialist
policy. It was opposed by the General Council of Shipping, the Association of
British Chambers of Commerce, CBI, National Union of Manufacturers and the
Traders Coordinating Committee for Transport. The LMS chairman stated: “We
intend to oppose nationalisation by all lawful means”, (The Times, 2 March
1946). On 17 July 1946, the railway companies and hauliers submitted a plan for
integrating long distance services - with some freight wagons used solely by
hauliers.

Opposing nationalisation, Anthony Eden
stated: “in the war, the USA
sent experts to inquire into railways and see if they could send help. They
were so impressed with the management and the way railways were run, that they
had absolutely no suggestions to make”. (Hansard vol. 431, col. 2065). This is
in marked contrast to visits by USA
industrialists who were very critical of UK coal and steel industries which
they said were too small and ought to be amalgamated into large units.

On 12 December 1946, the Railway Companies
Association “reiterated opposition to nationalisation and demanded a public
enquiry. The proposed terms were unjust: £42m dividends and interest were paid
in 1946 by railways; and £35m average between 1928-38 (including several years
of acute depression). British Transport Stock will pay £23m at 2.5%.[13] They
called for an independent Tribunal as in the 1921 Railway Amalgamations. The
scheme submitted by railways and hauliers had not received proper consideration.
Changes would involve great administrative and financial dislocation and impede
restoration of transport for years”.

Keesings
Contemporary Archives (8365A) reported: “A Railway Stockholders Union meeting on 13 December
demanded a public enquiry & condemned the confiscatory nature of the terms.
Churchill – now in Opposition – promised support in the “fight for justice”.
Letters in The Times objected to the ‘confiscatory terms’.”

The LNER Chairman told the AGM that the
arbitrary compensation terms “would bring a blush of shame to the leathery
cheeks of a Barbary pirate”. Railway Directors
and others in Parliament vehemently objected to the terms, for which there was
to be no arbitration as: “confiscation”, “disregard of the real value of assets
and fear of arbitration”, “the acquisition did not represent a sale by a
willing seller”, “the intended basis [retrospective share prices] did not
reflect the value of the assets even in their run-down condition”.

In Nationalisation
of Industry, (p222), Sir Norman Chester stated: A Select Committee had
dismissed share value as a basis for coal nationalisation, opting for ‘Net
Maintainable Revenue’. The Chancellor said that principle would value railways
at £1.6bn. The Opposition proposed arbitration as was to apply with road
transport, despite it forming part of the British Transport Commission along
with railways. The Times, reported (2.12.46): ‘If railways were compensated on
the same basis as hauliers, they would get double that proposed.’ No other
nationalisation terms were dictated: the Bank of England had prior agreement on
compensation of 25 year’s profits; coal, gas and steel were subject to
arbitration; Cable & Wireless was decided by independent tribunal; civil
aviation was negotiated by a willing seller; electricity was on a fair value of
assets plus loss of future profits. On 12 March 1947, the Minister stated that
‘negotiations were proceeding with Wagon Companies for new terms’. He had
earlier stated that 35% of these 0.58m wagons were over 35 years old, and over
20% obsolete! This contrasts with the brusque treatment of railway companies,
whose more reliable 0.64m wagons were not subject to negotiation. Ironically,
some Wagon Companies used their compensation to create Credit Companies funding
hire purchase of consumer goods, especially cars! No objection was voiced by
those companies which Keesings Contemporary Archives (9283A) notes:were owned by collieries, factors and
traders! BTC 1948 Accounts (Table V14 & p.15) record: ‘they received £42m
of 3% Stock redeemable in only 25 years and £1m cash’.

An Economist
Leader, (23.11.46, p836): “There is a single buyer, which for seven years fixed
railway revenue, and now determines its current value. It is nationalisation on
the cheap and comes near to expropriation”. The Stock Exchange took the
“unprecedented step of making representations that stock exchange quotations
were not related directly to the value of company assets or profits, but more
the result of factors such as hope, fear and guesswork on the part of investors
and could not form a fair, equitable or rational basis for compensation. The
only fair basis was arbitration”, (Keesings
Contemporary Archives 8365A).

“On 16 December 1946, the Minister rejected
demands for an enquiry. He said that overworking during the war without
opportunities for replacement or repair necessitated large capital outlay to
bring it up to an efficient standard”, (Keesings
Contemporary Archives 9283A). Government failed to live up to this inferred
promise. In their first seven years, nationalised railways were directed not to
restore assets to pre-war condition, but do the minimum necessary on safety
grounds [14]. In contrast, hauliers were getting new vehicles in excess of
government limits [15]. Railways had substantial capital in hand, and were also
due to receive the money in the Maintenance Trust Fund [16] – created during
the war and held by the Treasury. These were sums chargeable to expenditure but
not spent due to shortage of materials or labour. It amounted at the end of the
war to £152.4m. These sums had been correctly treated in Accounts as
Expenditure and were not, therefore, profits [17], which were calculated by
deducting all expenditure, depreciation etc, from income. Before tax and Excess
Profits Tax (EPT), Government took £127.5m of profits. Government made even
more from railways, by enforcing unique discounts on all war traffic, which did
not apply to road transport. In 1941, the Chancellor promised, as a ‘statutory
right’, to refund 20% of EPT after the war to industry – but not railways. All
industries excluding railways were allowed to increase prices during WW2 [18]
to reflect increased costs. Had railways been allowed to do likewise, profits
would have been £1bn higher [19]. Treated as EPT, this would have warranted a
post-war refund of £200m.

In 1948, the government nationalised £1bn
worth of railway assets without paying a penny [20]. They issued IOUs – British
Transport Stock - redeemable 40 years later from railway receipts. “For each
£100 of Railway Stock, the holder would receive such an amount of Stock as in
the opinion of the Treasury is the equivalent value of Government
securities”[21]. It was a master stroke. However, the Act decreed that a Court
of Law would decide fares and freight charges [22]. This system applied to no
other industry – nationalised or private – and produced deficits [23]. If
government had funded acquisition, and railway prices had not been below
inflation, it may have had social merit. However, they were well below inflation,
having been frozen for five years of war, and only increased 30% in 1946, when
industrial fuelled inflation reached 116%. Government had planned to avoid
repetition of the same ruinous policy of WW1 by allowing rail prices to match
wartime costs. It reneged, after objections from those freely increasing their
prices and wages, even though increases would have been submitted – even in
wartime – for approval by the Railway Rates Tribunal.

It is claimed that ‘shareholders got more
favourable terms for stock as result of an anti-nationalisation campaign’ [24].
It had no effect; the valuation terms in the Transport Bill were never altered
from the basis of share prices on dates specified by government. With
nationalisation threatened, share prices were low and the Financial Times said
it was not a fair basis. Had railways been acquired by buying shares, prices
would have risen on news of a take-over. Shares could have been quickly sold
for cash. After 40 years, the value of IOUs would be halved by inflation.
Treasury valuation for five railways (i.e. including London Transport) was
£1.0bn compared with the value of securities on the Stock Exchange of £1.1bn
[25]. Assets transferred from the five railways, were valued in BTC Accounts on
1 January 1948 at £1.7bn! [26] When the Minister was asked, in February, for
the value of Assets, he didn’t know,[27] and he didn’t find out.

It is alternatively claimed that
shareholders enjoyed favourable arbitration. There was no arbitration. Credit
for arbitrating was erroneously attributed to Stanley Hill [28]. He did not
make this claim. He told the Transport Tribunal’s 1951 Hearing into rail fares,
and repeated it at a line closure Hearing in 1953, that “his firm - not he -
was involved in the 1933 London Transport arbitration”. That was for a few
buses and trams, not railways - for which there was no arbitration. “He had
acted as Advisor to the Railway Rates Assessment Authority”. Its sole duty was
to assess the rateable value of railway property. He later admitted that the
senior partner was the Authority’s Advisor, ‘but he had access to the papers in
the office’ [29]. He claimed no personal role in railway costs or
nationalisation, which was crucial to his locus standi in Tribunal Hearings.

It is claimed that “Directors lost interest
in day-to-day operations and concentrated on fighting for favourable
compensation” [31]. Directors had no day-to-day operations role, which was the
responsibility of managers. Their primary responsibilities were policy and
financial, including investment (which was restricted by the Minister from 1939
to 1948). Fighting against a takeover, and/or obtaining the best terms for
their shareholders was their legal duty – a duty which has been exercised
frequently in other businesses.

Between the end of the war in 1945 and
nationalisation in 1948, the main line companies – with Ministerial approval –
made some improvements and resumed modernisation works stopped by the war. Some
schemes were held up by the inability of manufacturers to supply materials, and
by government restrictions [32].

In November, 1945, the Minister was told of
overcrowded trains and asked to return railway-owned rolling stock sent abroad
by Government. He said that about half had returned (in poor condition) and the
rest would come as soon as possible [33]. In 1947, railways wanted to build
3,070 coaches, but were limited to 1,200. Inferior coal led to heavier
consumption and reduced efficiency [34].

The Minister dictated the
organization of nationalised transport, including the composition of the
Railway Executive and the boundaries of the Regions, which did not have General
Managers nor Boards of Directors [35]. “The organisation will be highly
centralised. Railway Executive Members will directly control Departmental
subordinates in the Regions. Chief Regional Officers will not be GMs. Regions
will have no collective responsibility and little autonomy” [36].The British Transport Commission took over
the role of Railway Boards, and the Railway Executive assumed the role of
General Managers [37]. Hence, the Regions did not have ‘General Managers and
Boards of Directors’ and were not ‘virtually autonomous’ [38].

Railway owned trunk road haulage:
HaysWharf , Carter Paterson and Pickfords
transferred to BRS on Day 1. Road hauliers – in the new guise of BRS did not
‘take on Collection & Delivery for BR in 1953’, as claimed [39]. Over
11,800 C&D vehicles transferred to BR in 1948, which retained control until
1968, when government created NCL to take over BR and BRS road transport. BR
also inherited 8,793 horses [40] from privately owned railways, of which 97%
were on town C&D, with 238 shunting wagons in small goods depots [41]. The
latter declined annually, finally disappearing by 1958.

It was claimed that ‘the BTC rushed to buy
0.5m decrepit colliery-owned wagons’ [42], when they were directed to do so by
the 1947 Act, passed before the BTC existed! The Act specified the price,
according to age and size, for each of these antiquated wooden ‘Private Owner
Wagons’, mostly of 10 ton capacity [43]. The total came to £43m. There was no
option not to buy. Government had tried for 20 years to persuade railways to
buy and replace them with a modern fleet, to cut unemploy­ment, but railways
refused. They were not in good condition before the war and limited, even then,
to lower speeds than railway owned wagons. Within a year, 55,000 had to be
scrapped, and replaced by new 16ton capacity steel wagons at BR cost. Scrapping
continued annually. With limitations on BR expenditure and inequitable economic
policies limiting steel allocations, 27% were still in use 10 years later
causing delays. Wagon fleet reduction was limited by inefficient use by
collieries, industry and traders. Companies, which employed 10,000 staff
building and repairing these wagons at 280 private works & 900 siding
repair depots [44],were not
nationalised. BR was required to pay them to maintain ‘ex-Private Owner
Wagons’. In 1951, when BR gave notice to end this practice, they appealed to
government and BR had to withdraw [45].

Government also forced BR to buy the handful
of assets funded by government early in the war to facilitate war traffic,
mainly to avoid areas vulnerable to air attack, because government had
irresponsibly left the country with inadequate air defences. During the war,
railway managers told government that these assets would not be required by
them post-war. ‘Negotiations’ with the Treasury were conducted on behalf of the
BTC by ex-civil servant Sir Reginald Wilson, who agreed that BR would pay. The
assets were over-priced [46].

The first Chairman of the Railway Executive
(aka British Railways) was Southern Railway’s General Manager Sir Eustace
Missenden [47]. The first chairman of the British Transport Commission (the
‘owners’ of British Railways) was retired civil servant Sir Cyril Hurcomb, who
had personally led the anti-rail sequestration, and whose department had
devised the unwieldy organisation.

[5] John
Pollock claims in Kitchener that Lintorm Simmonds, a Railway
Inspecting Officer in 1846, masterminded the British railway system. There was no master plan, and Inspectors did
not have those powers. Even after the first systems opened, it was not too late
to follow the European lead.

[6] ‘Compensation’
was set by a committee meeting in camera. Railways were not present. Media
estimated compensation at £400m. Railways received £60m less tax. Wolmar’s On the Wrong line, page 17, said the
£60m was paid ‘to discharge an
obligation to maintain receipts at 1913 levels’. Not so. It was to cover
deferred maintenance, abnormal wear & tear, replenishment of stores, ships
sunk whilst on war duties, etc.Government’s obligation was to maintain profits at the 1913 level, not
receipts. Decades later, MPs claimed it was a ‘generous subsidy’! Privately owned
railways were never subsidised as audited Accounts prove.

[7] Government
decreed an 8-hour day for rail staff. Burton,
Great Days of Canals, page 161: ‘road
drivers were working 100 hour week’.

[10] A legal
body set up in 1921 to rule on railway prices, on the premise that railways
would be a monopoly. It continued long after their monopoly had ended, and was
renamed in 1948.

[11] WP[41]
173, see also Square Deal Denied,
page 172

[12] Paradoxically,
it claimed in later years, that pre-war railways were unprofitable!

[13] The figures were not disputed by Ministers, and
destroy the myth that pre-war railways were unprofitable. Critics cite poor
dividends on Ordinary Stock, but large sums were paid annually on Preference
Shares and Debentures. In 1948, the Treasury reluctantly issued Stock at 3%
which was, then, the prevailing rate, (The Times 5 March 1948), increasing the
total to £27.6m, well below pre-war.

[14] BR was criticised for building steam
locos, which, unlike diesel or electric, were permitted under these rules. By
1955, BR had replaced 10%, cutting the fleet by 11%, to handle virtually the
same traffic vol­ume.

[16] Keesings Contemporary Archives 6404C:
‘Railways pay money unspent on maintenance into the Maintenance Trust Fund.
This Fund was to be returned to railways after the war to restore assets’.

[17] C. Wolmar,
Fire & Steam, page 263: ‘in
compensation for profits taken out of railways, government created a Trust Fund
for investment in railways & most of it, about £150m was handed over to the
BTC’. These funds were not profits, but were for deferred maintenance which
were owed to railways.

[18] Prices
of Goods Act, 1939

[19] Britain’s Railways – the Reality, E.A.Gibbins, page 18

[20] ibid
page 23, Canal and other assets increased the total.

[21] ‘This long life surprised the City
when the Treasury announced it, 24 hours after taking railways over. 3% Savings
Bonds had a 12 year life’. (Times 2 Jan). Treasury Stock for Bank of England
was 3% over 20 years.

[22] In
1997, Labour forgot its 1948
masterstroke, rejecting re-nationalisation ‘which would cost £200bn’. It did
not repeat its 1948 pricing blunder, leaving privatised railways to cash in on
economic expansion and rising motoring costs.

[23] The
President of that Court admitted this to the Minister’s Advisory Committee, see
Britain’s
Railways – the Reality, E.A.Gibbins, page 176

[41] BTC Accounts, 1948, Table VII-7. Wolmar’s On the wrong line (page 25) states 7,000 horses were employed in shunting yards. A horse could pull one or two
loaded wagons at most. In shunting yards, whole trains were propelled from
arrival sidings into sorting sidings. This was beyond the capability of horses.
Their use in moving wagons was limited to small goods depots, where shunt
engines were uneconomic.

[43] The
price was based on depreciated values – not condition (PRO: MT47/223), nor on
‘pre-war new prices’ as stated by Vaughan
in Railway Blunders, page 60. The
prices were in the Transport Act, 1947, 6th Schedule.

[44] Reader’s
letter, Modern Transport, 22 June
1946

[45] Evidence to Special Advisory Group - PRO: MT132/82

[46] Britain’s
Railways – the Reality, E.A.Gibbins, page 12

[47] Not
General Sir Brian Robertson as stated in The
Time of my life, by Denis Healey, page 118